How I did it: Burnaby fleet tracking company gets back on track

Switching from telematics hardware to software services was fundamental to fleet management company’s reversal of fortunes

|
Feb. 18, 2013, 11 p.m.

Scott Edmonds

Business in Vancouver’s “How I Did It” feature asks business leaders to explain in their own words how they achieved a business goal in the face of significant entrepreneurial challenges. In this week’s issue, Scott Edmonds, who took over as Webtech Wireless Inc.’s (TSX:WEW) CEO three years ago, talks about the challenges of transitioning from a money-losing telematics hardware company to a fleet management software company. The company recently sold its NextBus system for $20.7 million.

“Webtech was a mile wide and foot deep with [fleet management] applications. We were losing a lot of money. There was a lot of discussion at the senior level to make sure that the verticals that we chose to focus on were the right ones.

“We took a perennial money loser that was focused on selling hardware, and we’ve shifted it to focus on selling [software] solutions, and we’ve gone from losing significant amounts of money each quarter to reporting positive EBITDA quarter after quarter for seven quarters. Four years ago, close to 80% of our revenue came from hardware, and today it’s closer to 25% of our revenue.

“It wasn’t that [hardware] was money losing, but it was lower margin – it had no recurring revenue attached to it, and it’s a very competitive market. Slowly weaning ourselves off legacy businesses – while building up the new businesses – without enormous disruption was a challenge.

“We had to do some restructuring. You have to reassure people after that happens. We had a New York service office – we closed that down. We closed our U.K. sales office, and we’ve near-shored some processes from Toronto to Vancouver.

“We had acquired a business in 2009, Grey Island (Systems International). Grey Island had acquired NextBus in 2005. NextBus takes GPS information and runs it through a patented process to make a prediction when the next bus will arrive.

“NextBus was a neglected asset. It was at about $2 million in revenue with significant customer concentration at that time. When we sold it [for $20.7 million], it was at about $8.5 million.

“It was doing extremely well. But our core business is telematics, and the predictive arrival segment is not part of the telematics market. NextBus was a non-core asset. There wasn’t a lot of strategic alignment to our telematics business, nor was there a great deal of operational efficiency available. Selling to transit agencies doesn’t really help us. There is a limit to how much you can grow in that kind of market when you have a single point solution.

“For those reasons – and because cash is always nice – it was time to sell. A much bigger owner can benefit from its strengths and invest in the areas of exposure.

“As we’ve done fewer things, you get greater efficiencies. When I took over [in 2009], we did about $28 million in revenue, and we had 240 employees. We’re at just under 150 people now. If you take away NextBus, you can think of our revenue as being at about $30 million. That’s about $200,000 per employee."